Not all profitable companies are built to last - some rely on outdated models or unsustainable advantages. Just because a business is in the green today doesn’t mean it will thrive tomorrow.
A business making money today isn’t necessarily a winner, which is why we analyze companies across multiple dimensions at StockStory. Keeping that in mind, here are three profitable companies to steer clear of and a few better alternatives.
Trex (TREX)
Trailing 12-Month GAAP Operating Margin: 22%
Addressing the demand for aesthetically-pleasing and unique outdoor living spaces, Trex Company (NYSE:TREX) makes wood-alternative decking, railing, and patio furniture.
Why Is TREX Risky?
- Sales trends were unexciting over the last two years as its 3.6% annual growth was below the typical industrials company
- Day-to-day expenses have swelled relative to revenue over the last five years as its operating margin fell by 5.3 percentage points
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
Trex’s stock price of $42.75 implies a valuation ratio of 26.1x forward P/E. To fully understand why you should be careful with TREX, check out our full research report (it’s free).
Benchmark (BHE)
Trailing 12-Month GAAP Operating Margin: 3.6%
Operating as a critical behind-the-scenes partner for complex technology products since 1979, Benchmark Electronics (NYSE:BHE) provides advanced manufacturing, engineering, and technology solutions for original equipment manufacturers across aerospace, medical, industrial, and technology sectors.
Why Are We Cautious About BHE?
- Annual sales declines of 3.2% for the past two years show its products and services struggled to connect with the market during this cycle
- Low free cash flow margin of 0.7% for the last five years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
- ROIC of 7.2% reflects management’s challenges in identifying attractive investment opportunities
At $65.05 per share, Benchmark trades at 24.9x forward P/E. If you’re considering BHE for your portfolio, see our FREE research report to learn more.
Assurant (AIZ)
Trailing 12-Month GAAP Operating Margin: 8.5%
With roots dating back to 1892 when it was founded by a Civil War veteran, Assurant (NYSE:AIZ) provides specialized insurance products and services that protect major consumer purchases like mobile devices, vehicles, homes, and appliances.
Why Does AIZ Worry Us?
- Large revenue base constrains its growth potential, as seen in its unexciting 4.8% annualized increases in net premiums earned over the last five years fell below our expectations for the insurance sector
- Earnings per share lagged its peers over the last two years as they only grew by 13.1% annually
- Annual book value per share growth of 2.8% over the last five years lagged behind its insurance peers as its large balance sheet made it difficult to generate incremental capital growth
Assurant is trading at $227.76 per share, or 1.8x forward P/B. Dive into our free research report to see why there are better opportunities than AIZ.
Stocks We Like More
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Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-micro-cap company Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today.